Selling Seats Through An English Auction

G. Dirk Mateer
Department of Business/Economics
Grove City College

The author would like to thank Ken Stitt and
Tracy Miller for their help in administering the auction.

The experimental auction highlights the importance of property
rights in undergirding the market process. The auction is
conducted on the first day that the class meets. The auction
process and outcome provides a concrete example of how markets
work and an opportunity to relate this to a variety of topics
discussed in principles of economics.

At the beginning of the fall semester (1996) students in ten
classes at Grove City College were given the opportunity to
purchase a seat or seats for the semester. A minimum price of
$0.05 was set and the amount bid was collected by the professor
in charge. Students who decided not to purchase a seat would
either have to lease or purchase a seat from another student or
could sit on the floor. Any seats which were not bid on became
the property of the professor and could not be used by any
student. [The auction starts at the front of the room and moves
toward the back. Seats are sold one at a time and the auction
proceeds across each row from the side nearest the door to the
opposite end.]

Students were told that any money collected from the auction
would be used to fund class refreshments as determined by the
class. Students were also asked to supply anonymous personal
information on their overall grade point average, gender, major,
and vision. These control variables were then combined with the
information on amount bid and seat location to produce a model of
seat selection. Altogether, 292 usable sets of student data (out
of 360 students enrolled) were collected.

Winning bids ranged from a low of $0.05 to $20.00 per seat
with an average of $3.53! At first glance this result is
surprising until it is considered in proper perspective. A
typical class requires the purchase of a textbook, notebook, pens
and pencils, use of a calculator and other accessories. So by
establishing property rights (and requiring students to pay to
acquire them) a seat purchase becomes, in effect, a course
requirement for most students. The overall bidding behavior
suggests that students do care about where they sit.

Part of the motivation for high bids seems to have been a
desire to resell seats at a profit. One explanation is that
students overestimated the potential demand for resale. Perhaps
some who intended to resell seats were unable to find buyers in
classes where there are more seats than students. Several
students also bought blocks of seats in order to provide
proximate seating for a group of their friends.

Some students bid high prices even when nearby seats were
going for much less and then did not even use all the seats that
they bought. In some cases, this may reflect their desire to have
open seats in front or beside them. Students who bought seats in
different parts of the classroom did not change seats during the
semester, though some resold those seats to others. Also, some
students may have purchased low priced seats in the front row to
make sure they had a place to sit and subsequently decided to pay
more for a seat in a more desirable location.

Pedagogy

The auction can be very helpful in discussing the notion of
scarcity. Students do not immediately recognize that there is a
problem of scarcity in a classroom with more chairs than
students. However, seats in desirable locations were scarce and
the shortage problem was exacerbated since many students desired
to purchase more than one seat.

The auction provided an opportunity to discuss alternative
rationing methods and inequality. When asked whether the
distribution of seats was more inequitable with the auction as
compared to more traditional methods of rationing seats (first
come, first served), several students pointed out that it was
more equitable because everyone had a chance to get and keep a
good seat, regardless of how late they arrived to the classroom.
As a side note, I would like to point out that since the
experiment was formally run, I have set aside a
"homeless" area for those who do not wish to buy a
seat. The homeless area is the first row at the front of the
classroom and is available to any student first come. (If you
decide to try this, don't be surprised if the front row is often
filled!)

The notion of opportunity cost could be explained in terms of
a seat. I emphasize the difference between opportunity costs and
sunk costs. The opportunity cost of letting someone else use a
seat is either the benefits the owner could get by using it
himself (even as a footrest), or what she believes someone else
would pay for that seat. Students seem to grasp the notion of
sunk costs better than in previous semesters.

The notion of shortages and surpluses could be discussed as
well. The professor can ask the students what would have happened
if a ceiling price was placed on a particular seat below the
market price. Other issues that could be discussed include the
importance of enforcement of property rights in providing an
environment where investment is encouraged. Once property rights
were established the students showed a high degree of respect for
the rights we had agreed upon.

Since the proceeds of the auction are used to purchase
refreshments, this enables a further point of discussion: who
gets what? The football player may consume four slices of pizza
while several students consume only one slice. The football
player may have purchased a seat for less than the average price.
Hence, one can illustrate that under certain political-economic
arrangements the distribution of goods may have little to do with
the production of those goods.

Summary Results

A simple OLS regression found that the further back a student
sits from the professor the more they are willing to pay for the
privilege (38.7 cents extra per row they move back). You can
request a copy of Mateer, et al (1997) for a complete description
of the regression results.

Another aspect of the analysis was to determine if student
bids could help explain how well students were likely to do in
the course. Data was available from four sections and course
grades were matched with the row the student bought a seat in. A
simple t-test was run to determine any significant differences.
The average GPA in the front row was 3.09, second row 3.12, third
3.08, fourth 3.07, fifth 2.78, and the last row had a GPA of
2.65. Not surprisingly the weaker students gravitated toward the
back of the room. Those preferring the last row attain
statistically lower grades than those who occupy the first four
rows. Ironically, they pay more for the privilege of sitting in
the back where they are likely to do worse!

An Aggregate Demand Driven Macroeconomic
Equilibrium Experiment

Charles Scott Benson, Jr. and Tesa Stegner
Department of Economics
Idaho State University

This is a revised version of a paper presented
at the 71st Annual Western Economic Association Conference, San
Francisco, CA, on June 30, 1996, in a session organized by
Jeffrey Parker, Reed College, Portland, OR.

This paper describes a macroeconomic experiment that can be
used in the classroom to simulate the impact of consumer spending
decisions on a two sector economy. In this simplified
specification, low levels of spending result in an unemployment
problem whereas high levels of spending cause inflation. Several
incentive systems are included to influence the students
behavior. The discussion of the experiment is followed by a
summary of the results and some suggested modifications.

Introduction

Although numerous experiments have been designed for
microeconomic concepts, there are only a limited number of
macroeconomic experiments. The existing macroeconomic experiments
are based on the microfoundations and are strictly limited to
classroom experiments. A review of the literature reveals an
exercise designed to derive a savings and consumption curve
(Brauer, 1994), a game which examines the budget balancing
process (Murphy, 1994), an experiment examining anticipated
versus unanticipated money shocks (Hazlett, 1996) and a rational
expectations experiment (Ortmann and Colander, 1995).

This experiment simulates the income determination process in
a two-sector macro model. Students are allocated a percentage of
GDP and must decide what percentage of this income they will
choose to spend in each of the following rounds. However,
students realize the public good nature of their spending. When
students save they receive all of the benefits, but increases in
spending only help each individual student by increasing the
overall level of GDP and therefore their allocation. Low levels
of spending bring about unemployment problems and high levels of
spending cause inflationary problems. There are several
additional features that could be incorporated into this
experiment. The experiment as originally conducted and some
suggested additions are presented below.

The Setup

The experiment was conducted in principles of macroeconomics
classes after the Keynesian multiplier had been discussed.
Students were given an information sheet in the previous class
period and a sheet on which to summarize the results the day of
the experiment. (Copies of these sheets are available from the
authors.)

The experiment has twenty players with larger classes having
more than one student assigned to each decision making unit. At
the start of the experiment, each player is given an identifying
letter. The income distribution is then revealed as a specified
percentage of GDP and the actual dollar value; students do not
have the option of choosing a letter with a high income. The
spreadsheet program, including the initial distribution
information, is projected on an overhead screen. Given the large
number of calculations, this experiment can not be run without
the aid of a computer. The spreadsheet program, written in
QuattroPro, can easily be adjusted for other specifications and
is available from the authors.

The initial equilibrium level of GDP was set at $400,000. The
distribution used is presented below in Table 1. GDP for
subsequent rounds is determined by summing the spending by each
player (consumption spending) and adding a fixed amount for
investment spending (set at 25% of initial GDP-- $100,000). After
any needed adjustments, this figure is allocated to the players
based on the original distribution which forms the basis for
decisions in the subsequent round.

Table 1. Initial Distribution of GDP

#
of Players

%
of GDP

Income
Level

7

2.5%

$10,000

8

5.0%

$20,000

3

7.5%

$30,000

2

10.0%

$40,000

20

100%

$400,000

There are several adjustments for GDP that may be needed.
First, if any players become unemployed, their income for the
period is changed to zero and the GDP for the period is
reallocated among the other players. Second, if the players
spending exceeds $300,000 then the value for GDP is adjusted
downward (to reflect inflationary pressure). For example, if
players' spending totals more than $300,000 in a round, then a
player receiving 5% of GDP could receive a maximum of $20,000 in
real income. This specification reflects the familiar
"L-shaped" Keynesian aggregate supply curve. This
simplified aggregate supply curve enables the student to more
easily see the results of deficient or excessive levels of
spending since there is either an inflation or unemployment
problem and not a combination of both.

The Play of the Game

At the start of each round players decide how much of their
income they choose to spend (and therefore save). Each player is
required to spend a minimum of $3,000 in each round out of their
current income. Players are not allowed to spend out of their
savings unless they become unemployed. The spending choice for
each player is collected and the data are then entered into the
spreadsheet. After the data are entered, equilibrium income is
found; however, additional adjustments may be needed. If consumer
spending falls below $280,000 (or remains below this level) then
one or more players must be randomly unemployed (or re-employed
as the situation warrants). Slips of paper with each
players identifying letter can be drawn from an envelope.
This information is then entered into the spreadsheet program so
that income can be accurately allocated for the next round. High
spending rewards can then be handed out while the players digest
the information and make their decisions for the next spending
round. It is advantageous to end the game before the end of the
class period to avoid a last period problem-students changing
their behavior in anticipation of the end of the game.

Spending Incentives

The decision to spend more than the minimum amount is
influenced by several incentives built into the game. First, the
next rounds GDP is calculated by summing the spending by
the players and a fixed level of investment spending. So the more
each player spends, the larger is the GDP pie and the more income
each player receives in the next round.

Second, high levels of spending are rewarded. This second
incentive reflects the concept of conspicuous consumption; the
real world phenomenon that wealthier individuals are able to buy
more "toys." The form of this reward varied the two
semesters the experiment was run. During the first semester,
candy was used as the reward, whereas points were given during
the second semester. The candy reward was received if a player
spent at least $18,000; if at least $23,000 was spent two pieces
were earned; and if spending reached $32,000 in a round three
pieces of candy were earned. A result of this constraint is that
low income players were not able to spend enough to ever receive
a piece of candy. For these people and others in the class that
simply did not desire a piece of candy, the only incentive to
spend was to increase the size of GDP so they would receive a
larger allocation, and to reduce the likelihood of becoming
unemployed. Since the end of the game reward was not based on the
amount of spending during the game, many students opted to save
either in case they became unemployed or to increase their end of
the game ranking.

During the second semester the experiment was run, points
allocated for high levels of spending were based on threshold
levels of spending and the percentage of income spent. A point
was received if spending exceeded $18,000 and two points for
spending over $23,000. A second reward structure was used so
everyone had a chance to earn some consumption points; one
additional point was earned if the player spent at least 80% of
the available income and another point if spending exceeded 90%.
Those earning points were given play money so that these spending
points were more tangible.

Finally, if spending is too low, players randomly become
unemployed. For every $20,000 that consumer spending falls below
$300,000 an additional player becomes unemployed. An unemployed
player does not earn any income during the periods in which
he/she is unemployed. An individual cannot remain unemployed for
more than two consecutive periods, but can become unemployed
again in later rounds. If spending remains low for more than one
period and more than one person is unemployed, 50% of the
unemployed become re-employed in the next period and new players
become unemployed. The distinction between transitory versus
permanent unemployment can be brought out by incorporating these
different lengths of unemployment. The incentive to spend could
be increased if the probability of becoming unemployed increased
with each period that the player remained unemployed. For
example, an additional slip of paper could be placed in the
envelope for each player that does not become unemployed in the
current round.

Saving Incentives

Two incentives are also built into the game that directly
influence the amount saved. First, savings earns an interest
payment of 5%. Second, the players rankings at the end of
the game are based on their increase in savings. Each
players percentage of the total savings is compared to
their initial allocation of GDP. Players are ranked and points
earned based on the difference in these percentages.

Results

This experiment was run in three principles of macroeconomics
sections during the Spring 1996 semester and one section during
the Fall 1996 semester. The GDP values at the beginning of each
round for the various runs of the experiment are listed in Table
2. In the three spring runs an unemployment problem resulted. In
Sections 1 and 3, the equilibrium level of GDP was slowly moving
back toward a full employment GDP level, whereas in Section 2 no
movement back toward full employment was detected in the rounds
completed. GDP did decline toward the end in Sections 1 and 3.
This occurrence is likely the result of students suspecting the
game was about to end, and therefore wanting to increase their
savings.

Several students commented during the experiment that this
must be what the Great Depression was like and that maybe the
government is needed to push their economy back toward full
employment. During the fall run, an unemployment situation
occurred in the first round, remaining for three periods,
followed by an over-correction to an inflationary problem. In
addition to providing a basis for a discussion on how aggregate
spending influences the economy, the experiment also opens the
door for a discussion on the possible role for an active monetary
or fiscal policy to correct deviations from full employment.

The results from the spring runs of this experiment suggested
that the savings and spending incentives were not compatible;
there was too strong of an incentive to save and receive points.
This suspicion was confirmed during the experiments
debriefing. Many students stated that they were more interested
in receiving points than candy. The incentives for the fall
experiment were changed to make the incentives more compatible.
Students did appear to respond differently to the incentive
structure, confirming the very basic economic principle that
individuals do respond to changes in incentives.

Table 2. Experiment Results: GDP at the
Beginning of Each Round

Spring
1996

Fall
1996

Section
1

Section
2

Section
3

Section
1

Rounds

GDP

GDP

GDP

GDP

1

$400,000

$400,000

$400,000

$400,000

2

$321,000

$286,500

$286,000

$272,300

3

$341,063

$263,453

$272,101

$313,647

4

$336,093

$290,685

$289,471

$378,684

5

$341,778

$299,274

$333,440

$415,194

6

$359,007

$291,341

$321,740

$432,499

7

$327,746

$282,188

$301,752

.

8

.

$267,653

.

.

Suggested Additions

There are other options that could be tried to address related
macro issues. These options include varying the income
distribution. Various income distributions could be examined
ranging from an equal distribution to one similar to the United
States current distribution. This could be done to
illustrate the results of various income distributions or as a
first step toward examining the results of various economic
systems (socialism, capitalism, etc.). A second addition could be
to include a "safety net" as an element to the game.
The funds for the safety net could come from either funds set
aside out of GDP (e.g., require that five or ten percent of GDP
be set aside each period for entitlement payments) or could
simply magically appear (sort of like deficit spending without
considering the long run implications). Thirdly, variable
interest rates could be added to the game. The interest rate
could adjust as the level of savings and investment diverge. For
example, for every $20,000 savings falls below investment, the
interest rate could increase one percent. This would add a
loanable funds market to the analysis. A fourth change could
allow players to spend out of either income or savings. The game
as originally designed treats savings more as a retirement
account rather than a savings account. Enabling students to spend
out of savings makes the game more realistic, but also increases
the complexity of managing the spreadsheet. Finally, investment
could be set as a percentage of GDP rather than as a fixed
amount. This may better simulate the actual role that investment
plays in an economy.

Introduction

The motivation and coordination games covered here are used in
the Managerial Economics class that is taught at UC Santa Cruz.
Both games provide students with a hands on way to experience the
differences between problems of motivation and coordination, a
distinction which many under-graduates do not immediately
understand.

Both games are conducted in class and they have a short
follow-up assignment that is announced after the game is
finished. This assignment is meant to help the students
understand what they have been doing and why the two games are
different.

In the coordination game, the students have a common interest
(the equilibria are Pareto ranked, and one is efficient). The
problem is aligning expectations (and actions). Generally, the
students initially settle on an inefficient equilibrium. Direct
communication between students allows students to achieve
efficiency and move to the Pareto efficient equilibrium without
the need for binding commitments.

In contrast, in the motivation game, the players have a
personal interest diametrically opposed to the common interest (a
sort of multilateral prisoners dilemma). By playing the
game, students come to realize how difficult it can be to achieve
cooperation when the benefits to defection are great. Even in the
classroom, it seems impossible to get the Pareto optimal
equilibrium without some kind of binding agreement.

Motivation and Coordination in Economics

Following Milgrom and Roberts text, Economics,
Organization, and Management, the firms problems fall into
two distinct categories: motivation and coordination. Problems
such as getting all of the parts of a firm to work together, and
economy wide resource allocation, are illustrations of the
coordination problems faced by the firm. Some of these problems,
like resource allocation, are easily solved by using price
mechanisms. In other situations, however, prices are
inappropriate or just do not work. How does a firm set up and
make work a just-in-time manufacturing system? Relative prices
may work but they may not be the most appropriate way to
coordinate all of the elements that need to work together to get
such a system to work. In all of these problems, there is an
equilibrium that is best for all the actors involved, but how
does the firm get there? Are there not ways for firms to get
better outcomes?

Motivation problems are slightly different. These deal with
the problems of making people or firms do what they otherwise
would not want to. This issue is critically important to issues
involving contracts. It also illustrates why it is so difficult
to get others to do what is in the groups best interest and
how group and personal interests can be diametrically opposed.

Firms constantly face motivation problems from both inside and
outside. How does one ensure that employees consistently act in
the best interest of the company and not in a self interested
fashion? How, in inter-firm agreements, do the firms work for the
best interest of the partnership? The key to solving motivation
problems is to align the interests of the individual (or other
company) with the interest of the firm.

A hands-on experience with some of these problems seems to
help students understand the concepts as well as appreciate the
difficulty, in some situations, of reaching the optimum.

The Coordination Game

The coordination game is very simple in its structure. The
students are playing for points (ideally linked to a prize or in
our case, bonus points) and receive an instruction/reporting
sheet. Two to four class monitors are needed. All the other
students in the class participate. The students are split into
groups A, B, of between 5 and 15 players each.*
Each period, the students are asked to choose a number between 1
and 10 (inclusive) based on the following earnings rule that is
on their instruction sheets (see Appendix A): let LG be the
smallest number chosen in team G, let xi > LG be the choice of
individual i in that team. Student i earns LG less his deviation
di = xi - LG from the teams choice. So, Pi = LG - di (= 2LG
- xi) are is earnings that period.

The students make their choice and record it on their
reporting sheets. The monitors then go around and announce the
values of LG for all of the teams and the students calculate
their earnings that period (and record the LGs for each group).

We use two different treatment variables: communication and
group size. The initial periods can have no communication between
students. In subsequent periods, communication is allowed. They
generally achieve the optimal outcome without incentive schemes
so long as there is communication allowed. Varying group size by
combining and splitting up groups also adds some additional
dynamics to the exercise and keeps the students interest up
by changing the people with whom they must interact. It is
however crucial to make sure that each change in treatment be
noted on the students record sheets.

The efficient equilibrium is to have all members of the group
choosing xi = 10 (see Table 1). Contrary to what will happen in
the other game, there is no incentive here to defect. A student
who chooses to defect would get earnings of 9 instead of the 10
they could get by not defecting (it is interesting to note that
the other members of the group lose even more from the
defection--they now get earnings of 8 points instead of the 10).

Table 1. Coordination Game
PayoffsThe individual players earnings are dependent on the
smallest number chosen in team G (LG) as well as the choice of
xi.

LG=1

LG=2

LG=3

LG=4

LG=5

LG=6

LG=7

LG=8

LG=9

LG=10

xi=1

1

.

.

.

.

.

.

.

.

.

xi=2

0

2

.

.

.

.

.

.

.

.

xi=3

-1

1

3

.

.

.

.

.

.

.

xi=4

-2

0

2

4

.

.

.

.

.

.

xi=5

-3

-1

1

3

5

.

.

.

.

.

xi=6

-4

-2

0

2

4

6

.

.

.

.

xi=7

-5

-3

-1

1

3

5

7

.

.

.

xi=8

-6

-4

-2

0

2

4

6

8

.

.

xi=9

-7

-5

-3

-1

1

3

5

7

9

.

xi=10

-8

-6

-4

-2

0

2

4

6

8

10

The Motivation Game

The motivation game appears very similar to the coordination
game. The class setup is the same and the instructions are
similar. This is done so that the students focus on the structure
of the game rather than on the differences in notation. The
primary difference is in the earnings rules that are given. The
group and individual benefits are now diametrically opposed, not
complementary.

Each period, each student is asked to choose either 0 or 1
based on payoff rules that are provided on their instruction
sheets (see Appendix B). Letting MG = SUM(xi) be the total number
chosen in group G, player i earns MG less her effort cost 5xi, so
player is individual earnings are Pi = MG - 5xi. The
students make their choice and write it on their reporting sheet.
The student monitors go around checking the sheets and announce
the values of MG for each group. The students fill in the values
for MG and calculate their earnings on their reporting sheets.

Once again, the first four periods are done with no
communication between students. In periods four through eight the
students are allowed to communicate. In the final periods the
students are allowed to agree on contingent transfer (or
incentive) schemes. Group size and composition are also changed
periodically.

As can be seen from Tables 2 and 3, the players have an
interest diametrically opposed to the group interest. Assuming a
group of seven students, table 2 shows how a myopic individual
player perceives the game. The myopic player will have a tendency
to play xi = 0. In contrast, Table 3 shows the group average
earnings for different MGs. Here the average earnings clearly
increase as MG increases so there is a definite benefit to
everyone in the group choosing xi = 1 over xi = 0.

Table 2. The Individuals
Motivation Game

MG

Pi|xi=0

Pi|xi=1

0

0

n/a

1

1

-4

2

2

-3

3

3

-2

4

4

-1

5

5

0

6

6

1

7

n/a

2

Table 3 also illustrates the advantages defection from the
optimal policy can have for a player. If all other players are
going to play xi = 1, the last player has the option of playing
xi = 1 earning 2, or xi = 0 earning 6. The players
interests are diametrically opposed to the groups interest.

Table 3. Motivation Game
Payoffs: Motivation game payoffs with a group of 7 students

#of
xi=1

#
of xi=0

Pi
for xi=1

Pi
for xi=0

Total
Group Earnings

Average
Earnings

0

7

n/a

0

0

0

1

6

-4

1

2

0.2857

2

5

-3

2

4

0.5714

3

4

-2

3

6

0.8571

4

3

-1

4

8

1.1428

5

2

0

5

10

1.4286

6

1

1

6

12

1.7143

7

0

2

n/a

14

2

In class, the students are usually incapable of reaching the
Pareto optimal outcome without binding agreements. It is
interesting to let the students decide on their own what kind of
agreement they think will work (although they do occasionally
need a few suggestions on how binding agreements can be set up).
The instructor is often used to enforce the binding agreement but
this is only allowed when their groups agreement is
unanimous.

Post Game Exercises

After the games have been conducted in the classroom, the
students are required to turn in follow-up exercises in the next
class. This usually requires graphing the results, computing the
mean, the standard deviation, the deviations from the Pareto
optimal outcome, etc., across the different treatments. These
reports are usually separate assignments since the two games are
usually conducted on different days. The results of the game and
the students write-ups are then discussed in class (or in
section). This is a time for the students to compare their
experiences and results, get questions answered, and discuss the
differences between the two games.

Because the students will be basing all of their analysis on
the data they recorded on their record sheets, it is crucial that
they fill these out completely. It is also important to have the
follow-up analysis announced after the students have completed
the exercise so that it does not influence their actions.

Variations and Other Applications

Both of these games can be varied in several different ways.
In either game the earnings could be changed from individual
earnings to average group earnings. This would substantially
change the actions of the individuals in the motivation game and
not have a substantial effect on the coordination game. Another
possible variation is making slight changes in the earnings
rules. Changing the effort cost in the motivation game will
affect the gains to defection and should change the ease of
reaching the Pareto optimal outcome. Making the earning rule in
the coordination game be dependent on two times the deviation
from the teams choice is another possi- bility. The
variants are endless and could lead to interesting post game
exercises for the students.

There are also other possible uses of these games. Although
incorporated in a series of games, these games could just as
easily be used as stand alone games in other classes such as
environmental, introductory, or intermediate economics courses.
The motivation game is particularly suited to explaining the
difficulties in organizing a cartel (although the game does not
model the social costs of the cartel).

References

*The examples given in this paper
are for a class of approximately 50 students. A few minor
adjustments may have to be made for classes that are
substantially larger or smaller.

Appendix A: Coordination Game Instructions and
Reporting Sheet

Economics 101 Name:
UCSC Term, 199X
Coordination Game Instructions
Purpose: To experience a basic coordination problem and how it may be
overcome.
Rules: Two to four student volunteers to monitor. The others form teams.
Each period each person chooses a number 1-10 so as to maximize earnings.
Earnings: Let LG be the smallest number chosen in team G, and let xi >
LG be the choice of individual i in that team. Then, i earns LG less his
deviation di = xi - LG from the teams choice, i.e., Pi = LG - di (= 2 LG
- xi) are is earnings that period.
Each period, every player records his or her own choice, xi, each teams
choice LA, LB, ... , and his or her deviation di and earnings each period
on the record sheet.
Players receive .05 of the total earnings as bonus points. Monitors
receive the class average bonus points.

Appendix B: Motivation Game Instructions and
Reporting Sheet

Economics 101 Name:
UCSC Term, 199X
Motivation Game Instructions
Purpose: To understand how group efficiency can be affected by
motivational problems.
Rules: Two to four student volunteers to monitor. The others form teams.
Each period each person i chooses a number xi = 0 or 1 so as to maximize
earnings.
Earnings: Let MG = SUM(xi) be the total number chosen in team G. Then
player i earns MG less her effort cost 5xi, so Pi = MG - 5xi are her
earnings that period.
Each period, every player records his or her own choice xi, each team's
choice MA, MB, and his or her earnings each period on the record sheet.
Players receive .05 of the total earnings as bonus points. Monitors
receive the class average bonus points.